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The Fed Still Matters: Global Week Ahead

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Up to a couple months ago, it would have been absurd to choose “The Fed Still Matters” as a title for the Global Week Ahead.

Have times changed for equity traders?

I need to remind all of you: don’t lose sight of this. YES, the Fed’s rate hike outlook still matters. Their ‘dot plot’ still resonates across all interconnected global financial markets.

Domestically, think of the U.S. dollar, mortgage rates and bond credit spreads. Most important, lofty U.S. stock valuations can move down hard upon any surprises from U.S. monetary policy. The more lofty they are, all the more scary.

While all opinions at the Fed Open Market Committee (FOMC) level matter, traders pay particularly close attention to its leaders -- Janet Yellen and Stanley Fischer.

Friday at noon, Fed Chair Yellen speaks before the more than 100-year-old Executives’ Club of Chicago. The event is sold out.

At the same time, Vice Chair Fischer is the keynote speaker in NYC at the Chicago Booth School of Business annual U.S. Monetary Policy Forum. It is invitation-only. A standing group there has rotating responsibility for producing a medium-term report on issues confronting the FOMC. Fed regional presidents Kaplan, Evans and Lacker play roles, too.

The two leaders get their last words in before all FOMC voting members slip into blackout mode on Saturday. This quiet period lasts until the FOMC statement made after the March 14 to 15 meeting. A “Summary of Economic Projections” arrives then as well.

Fed funds futures have been stuck around a 30% probability of a hike at that meeting. It was 26.6% when I checked the CME FedWatch tool. I put the chances of a rate hike coming on Wednesday, March 15th north of 50%. Sooner than later, that lazy consensus will be dead wrong.

Heed those words!

Consensus is like watching a bunch of sheep graze tightly, or a school of sardines circle closely. Everybody sticks together because the outliers get picked off.  

Outside the U.S., big news in the Global Week Ahead could hit from the leader in Asia.

China updates purchasing managers’ indices (PMIs) for manufacturing and services sectors as well as the composite PMIs — all for February.

The state version will be released on Tuesday night. The private Caixin manufacturing PMI will also come out on Tuesday evening. The latter sample is skewed toward smaller manufacturers in more export-oriented coastal cities.
¿¿¿If China’s manufacturing sector starts to expand much more rapidly, that would be a game changer. Ditto for the opposite scenario of a contraction. Lately, it’s been a razor’s edge story.

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Key Global Macro—

Major U.S. trading events -- gratis the Federal gov’t -- hit at the end of the week.

On Thursday, the Fed releases its Beige Book. This provides anecdotal evidence on the U.S. economy from the perspective of the 12 Fed regions.

On Friday, Fed Chair Janet Yellen speaks at the Executives’ Club of Chicago and Vice Chair Stan Fischer speaks in NYC. Also, the Federal nonfarm payroll report should be solid. Consensus looks for +227K.

On Monday, U.S. pending home sales should be up +1.6% m/m.

U.S durable goods order should be up +3% m/m, after a prior -0.5% m/m print.

Japan’s retail sales should be up a paltry +0.7% y/y, and down -1.6% m/m.

On Tuesday, France’s preliminary GDP growth rate should be +1.1% y/y, and its preliminary CPI inflation rate should get to +1.4% y/y from a +1.3% prior.

India’s GDP growth rate looks to fall to +6.4% y/y from +7.3% y/y in the prior reading.

Chile’s copper production should be 503, 874 tons. The unemployment rate is 6.2% there.

The 2nd estimate for last quarter’s U.S. GDP should be +2.0% q/q.

The U.S. Chicago PMI index should be 50.3.

U.S. consumer confidence should be strong at 111.8.

The Fed’s Bullard speaks in Washington.

On Wednesday, the Bank of Canada (BoC) announces its latest rate decision.

South Korea’s exports are growing +11.2% y/y despite the political turmoil there.

U.S. vehicle sales should be 17.48 million units. Above 16 million is respectable.

Germany’s final manufacturing PMI should be a strong 57.0. That nation’s unemployment rate is 5.9%.

Germany’s CPI inflation rate is 2.2% y/y.

Mexico’s IMEF manufacturing index looks to fall into contraction at 46.5 down further from a 47.1 prior reading.

On Thursday, the Eurozone’s flash core HICP inflation rate should be +1.0% y/y from +0.9%.

The Eurozone unemployment rate should be 9.6%.

U.S. initial claims look low at 244K.

On Friday, the composite Eurozone PMI should e 56.0. That’s strong.

U.S. nonfarm payroll looks solid again at +227K in February.

The Fed’s Fischer speaks in NYC.

Fed Chair Yellen speaks at the Executives’ Club of Chicago on Friday.

Over the weekend, the National Association for Business Economists (NABE) meets.


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